WMATA saves some money

Yesterday, WMATA announced in a press release that its expenses were lower than predicted during the 2012 fiscal year, which ended in June. The transit system took in $2 million less in fare revenue than it expected, but spent $30 million less.

Photo by jcolman on Flickr.

The savings comes in part from lower fuel and energy costs and an audit of which Metro workers' dependents were eligible for health care. The agency also spent less on MetroAccess after recent moves cut down on how many people use paratransit service.

WMATA proposes applying this surplus, plus other reductions in costs, to reduce the amount of funding it will need from jurisdictions. The last estimate put its funding need for FY2014 (July 2013-June 2014) at $76 million, and along with other savings and expected funding grants, this reduces it to $27 million.

Nearly every year, labor and benefits costs increase based on WMATA's labor agreements, determined by arbitration, and some other costs like fuel and energy have also often increased. Meanwhile, fares don't automatically increase, and area jurisdictions don't automatically promise to put in more money each year to cover rising costs.

This creates a small projected deficit in the first public iterations of the WMATA budget. Most years, the jurisdictions have agreed to increase the amount of operating funding they provide, but that is always in doubt until they pass their final budgets in the spring, and in some years executives of Virginia, Maryland or DC have threatened to withhold funding.

The current WMATA board policy states that fare increases should only occur every other year, though severe budgets in the recession has led to fare increases even in some consecutive years. A particularly bad shortfall led to a mid-year increase in 2010 to close an unexpected drop in revenue. If WMATA does not get enough funding from jurisdictions and decides not to increase fares, then it must consider service cuts in order to balance the budget.

This surplus could also complicate WMATA's position in negotiations with its largest labor union. While WMATA argues that it cannot afford to increase wages and be the sole contributor to pension funds, it is also announcing a surplus over the previous year of operation. Arbitrators, not WMATA or local governments, set wage and benefits levels.

The arbitration panel could decide that Metro's financial position is not that bad, and may reject the idea of holding wages constant or requiring Local 689 workers to contribute to pension funds. These costs would increase the projected shortfall, and would require additional funds from governments or riders to keep the budget balanced.

Calling this a "surplus" may mislead some riders. It does not mean that Metro "made money" in 2012, but rather that its budget projections were gloomier than reality. Similarly, DC Public Schools might conceivably spend less one year than projected and end up with a surplus, but it's still getting most of its money from the District's general budget, not turning a profit from education.

It does, however, seem that WMATA could have told its board or the public about this a little earlier. Kytja Weir writes in the Examiner,

Metro had known it probably would have a surplus before finalizing the fare increases and higher subsidies. But Chief Financial Officer Carol Dillon Kissal said that she couldn't use the savings then because it was only a forecast. ...

Metro typically presents a stark forecast with a budget hole that needs to be filled with increased fares, service cuts or higher subsidies. But it was the second year in a row that Metro ended the year with a multi-million dollar surplus. In a report released last week, the agency said it had a $46 million surplus in the previous fiscal year.

It might have been possible to raise fares less. On the other hand, budgeting too conservatively just leads to a surplus, while budgeting too aggressively can force a sudden mid-year service cut or fare hike to fill an unexpected hole. In some past years, board members did more to pressure the agency to estimate higher. Sometimes that worked out, and riders saved money; other times, it led to last-minute crises.

This is only the beginning of WMATA's budget season. Over the next 7-8 months, WMATA staff, the board, and the public will discuss budget. Staff will first present the board with its forecasts for FY2014 (July 2013-June 2014), and CEO Richard Sarles will propose a budget in January. After that, the board will decide on whether to send any fare increase or service cut proposals to the public for comment around March, and in May or June will approve the budget for the coming year.

WMATA spokespeople did not yet return a call for comment from late this morning.

Michael Perkins blogs about Metro operations and fares, performance parking, and any other government and economics information he finds on the Web. He lives with his wife and two children in Arlington, Virginia.

With such a large percentage of the budget for labor costs, it amazes me that contracts and other one-time projects take up so much of the media about Metro. The arbitration process (and taking a look at previous processes that Metro appealed all the way through a judge's order) has a huge impact on the overall budget, and in result, rising fares and contributions from the jurisdictions.

Hopefully these savings do make an impact and spare riders from increases for FY2014

Can't Metro put this money into a "rainy day" fund to cover a future mid-year shortfall?

If they can't do that, then Metro can "store" this extra cash in a different way. They can pull forward capital improvement and maintenance projects, essentially banking their extra cash in physical stock rather than in a fund. Then when a shortfall occurs in the future, they can reduce capital/maintenance expenditures accordingly to cover the shortfall. This also avoids the problem of looking like they have spare cash on hand to the unions.

WMATA should look at putting some of the extra money into, if not a rainy day fund, call it a buffer fund to help cover interim shortfalls in revenue. But the politics and financial considerations are obviously complicated with wages and benefits are under the control of an arbitrator combined with dealing with multiple local governments.

However, if the Metro is doing better on operating costs than expected, rather than be in fear of future service cuts, maybe some of the savings should go towards improving service hours and frequency? Radical idea I know.

This blog just had a long discussion on this, but how about applying some of the surplus to increase operating hours on Sunday to Thursday to actually mean midnight (or later) closing time at all stations in the "greater core" (including Navy Yard) and at least 11:50 PM heading inbound from the outermost stations. Then also expand opening hours to 6 AM on Saturday and Sunday. If the cost per hour at late night service frequencies is $29.5K minus ticket revenue, even at a 35% cost recovery from fares, my back of the envelope guess-estimate math says expanding the hours by this really modest amount would not cost all that much.

@andrewAlso, we need to have a serious discussion about why Metro's labor costs are so damn high, and how to reduce those costs without deliberately f---ing the employees.

Are their labor costs high? That might be question #1. From what I've seen their costs seem to be in line with other transit agencies both in terms of labor costs compared to service provided and labor costs as a percentage of total costs.

@Andrew- the last time WMATA put funds in a reserve fund, an arbitrator ruled against WMATA and forced pay raises for the unionized employees. Why? I believe the reason was the arbitrator saw the funds WMATA set-aside in case they had to pay the raises they didn't want to pay and used that to justify funds available for the raises.

I probably don't have this 100% correct here but the basic point is the same.

@MLD; that's fine, except I've asked before about fuel hedging and was told that 1) fuel isn't a big mix of WMATA's cost structure and 2) hedging is too risky.

@Andrew; it isn't so much the salaries are bloated. There are real problems with overtime, with pensions, and more importantly the pension benefit WMATA has to put in and how long you can spread it out.

Some of this stuff can be negoiated; some of it is union practices which are going to next to be impossible to change.

What about increasing service? I'd rather have service restored and the states pay the same than trust the states to do something decent with it.

That's mismatching revenues and costs. This is a one year surplus of $28m. Increasing service is (say) one year of $10m in extra costs...every year, forward forever. Service increases need to be matched to revenue sources that provide money as the service is consumed (i.e. over many years).

except I've asked before about fuel hedging and was told that 1) fuel isn't a big mix of WMATA's cost structure and 2) hedging is too risky.

Utilities (gas and electricity, presumably) have been $84.7m, $94.2m, and $110.6m in the years ended June 30, 2011, 2010, and 2009. That's 4.0%, 4.7%, and 5.8% of total operating expenses in each of those years.

Looks to me like fuel (natural gas) prices are pretty low, all things considered. All they're (probably) doing is locking in a price that they pay, regardless of what happens to gas prices in the market. What about WMATA's fuel hedging specifically do you not like?

@WRD + MLD: well, I'd just like to get a bit more granular on that. Diesel prices have been steady, as WRD says natural gas is very very low, and not sure about electricity. So is the cost saving hedging (as the press release says), lower prices (MPerkins summary?) or something else.

The problem with hedging it is goes both ways. As with their tax deal a few years ago, WMATA is by no means a sophisticated player.

On another two notes:

1) I'm sure WMATA will continue to blame the "recession" on the lack of revenue; rather than poeple turning away from WMATA because of poor service and other issues (cost)

2) Also wondering if we'll first see a concrete change from bikesharing. At least for me, bikesharing is costing WMATA about $5 a week. Not huge numbers, but it is something.

Lets clarify a few facts on the FY12 budget results. WMATA spent $30 million less than its approved budget, a savings of 2 percent of its total operating budget. Revenue was $2.0 million below budget, a negative variance of 0.2 percent.

Opinions may differ as to whether all of the savings were the result of a well managed budget or whether some credit might be given to generous budget assumptions for fuel and propulsion power to start with. Fuel hedging doesn't necessarily save money it only guarantees a price for the hedger. The hedger pays a fee to guarantee the price. If prices rise abouve the hedge assumptions WMATA "wins". If fuel prices match the budget assumptions or fall, WMATA loses on the hedge but still pays what it assumed for the hedge protection. Depending on the amount of the fuel price decrease, it may or may not save money on fuel purchases.

Given WMATA's financial dependence on subsidies from several jurisdictions and lack of dedicated taxes, there is a strong incentive for the agency to always spend slightly less than their budgeted subsidies and fare revenue.

Maybe they could clean light fixtures and replace burnt out light bulbs. When Dan Tangherlini became acting chief this was supposed to be his first priority. Sadly he left before they changed a single bulb and I wonder why this is so difficult to do. I've never seen such bad lighting ain any other subway anywhere.

Free transfer from bus to rail would encourage downtown transit riders - such as those on Conn Ave. - to use the bus to get to the Blue line, etc. Thus, lowering crowding on the Red Line South of Bethesda.

@steve strauss: I think Metro pretty much said it was because of changes in MetroAccess policy that cut back on how much people use the service. Also figuring out who among Metro workers are sharing their health insurance with people that aren't really eligible.

It may be a small portion of their budget, but it's nearly half of the projected shortfall for the coming year, and it was apparently important enough to Metro for them to send out a press release about it. Maybe in the past they still had a surplus but didn't crow about it. They probably also silently gave it back to the jurisdictions.

Hilts has a good point about ways to reduce overcrowding on the Red Line. Perhaps Board members who ride the Metro Rail system during rush hour could sympathize.

Let's have a "Brainstorming" Contest on ways to reduce Red Line overcrowding and methods of getting riders to wait for the next train which is not full to the brim. What can be done to have riders spread out on the platforms?

Metro is a great system and we depend on it for in and outbound travel, reducing poor air quality problems, parking congestion and rapid transit. Why utilize the public in brainstorming ideas which increases the systems popularity and revenue. Encourage employers to stagger work hours and arrival times with reducing rates or offering perks.

Add a Comment

You can use some HTML, like <blockquote>quoting another comment</blockquote>, <i>italics</i>, and <a href="http://url_here">hyperlinks</a>. More here.

Your comment:

By submitting a comment, you agree to abide by our comment policy. Notify me of followup comments via email. (You can also subscribe without commenting.) Save my name and email address on this computer so I don't have to enter it next time, and so I don't have to answer the anti-spam map challenge question in the future.